Question 1

What does a market supply curve reflect?

Accepted Answer

A)  External costs of producing a good or service 
B)  External benefits of producing a good or service 
C)  Social costs of producing a good or service 
D)  Private costs of producing a good or service 
A)  External costs of producing a good or service 
B)  External benefits of producing a good or service 
C)  Social costs of producing a good or service 
D)  Private costs of producing a good or service

Question 2

Figure 11.11   Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 11.11 illustrates the situation in the toilet paper market.
-Refer to Figure 11.11.Suppose the government imposes a tax of $60 per ton of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Accepted Answer

A)  It rises by $60. 
B)  It rises by more than $60. 
C)  It rises by less than $60. 
D)  It remains the same because the tax is imposed on producers who create the externality. 
A)  It rises by $60. 
B)  It rises by more than $60. 
C)  It rises by less than $60. 
D)  It remains the same because the tax is imposed on producers who create the externality.

Question 3

Figure 11.4   Figure 11.4 shows a market with a negative externality.
-Refer to Figure 11.4.What price represents the true marginal cost of the last unit produced?

Accepted Answer

A)  Pa 
B)  Pb 
C)  Pc 
D)  Pf. 
A)  Pa 
B)  Pb 
C)  Pc 
D)  Pf.

Question 4

What does it mean if a good is classified as excludable?

Accepted Answer

A)  That anyone who does not pay for the good cannot consume it 
B)  That someone can be barred from consuming the good based on race, creed or some other irrelevant characteristic 
C)  That consumption of the good causes no externalities 
D)  That a producer with patent or copyright protection can exclude any other producer from selling his product 
A)  That anyone who does not pay for the good cannot consume it 
B)  That someone can be barred from consuming the good based on race, creed or some other irrelevant characteristic 
C)  That consumption of the good causes no externalities 
D)  That a producer with patent or copyright protection can exclude any other producer from selling his product

Question 5

Which of the following statements is true of the free rider problem?

Accepted Answer

A)  People consume a pure public good without payment, even though the good may not be produced if no one chooses to pay. 
B)  The marginal cost of allowing additional consumers to consume a public good is zero. 
C)  High income individuals subsidise the production of goods, such as education, that make society better off. 
D)  Markets fail to allocate resources efficiently when benefits outweigh costs. 
A)  People consume a pure public good without payment, even though the good may not be produced if no one chooses to pay. 
B)  The marginal cost of allowing additional consumers to consume a public good is zero. 
C)  High income individuals subsidise the production of goods, such as education, that make society better off. 
D)  Markets fail to allocate resources efficiently when benefits outweigh costs.

Question 6

Which of the following is a source of market failure?

Accepted Answer

A)  Unforeseen circumstances which lead to the bankruptcy of many firms 
B)  A lack of government intervention in a market 
C)  Incomplete property rights or inability to enforce property rights 
D)  An inequitable income distribution 
A)  Unforeseen circumstances which lead to the bankruptcy of many firms 
B)  A lack of government intervention in a market 
C)  Incomplete property rights or inability to enforce property rights 
D)  An inequitable income distribution

Question 7

Figure 11.7   Figure 11.7 shows a market with an externality. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 11.7.Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality.The economically efficient output is Q2.In that case,diagram shows

Accepted Answer

A)  the effect of a subsidy granted to producers of a good. 
B)  the effect of an excess demand in a market. 
C)  the effect of a positive externality in the consumption of a good. 
D)  the effect of a negative externality in the consumption of a good. 
A)  the effect of a subsidy granted to producers of a good. 
B)  the effect of an excess demand in a market. 
C)  the effect of a positive externality in the consumption of a good. 
D)  the effect of a negative externality in the consumption of a good.

Question 8

The tragedy of the commons was avoided in the Middle Ages by

Accepted Answer

A)  selling common grounds to individuals. 
B)  the local police who monitored entry into the commons. 
C)  social pressure to uphold traditionally accepted limits on family use of the commons. 
D)  the government, which imposed a tax for the use of the commons. 
A)  selling common grounds to individuals. 
B)  the local police who monitored entry into the commons. 
C)  social pressure to uphold traditionally accepted limits on family use of the commons. 
D)  the government, which imposed a tax for the use of the commons.

Question 9

Figure 11.1  
-Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If 4000 metrics of pecans are sold,

Accepted Answer

A)  the deadweight loss is equal to $12 000. 
B)  consumer surplus equals zero. 
C)  the marginal benefit of each of the 4000 metrics of pecans equals $3. 
D)  marginal benefit is equal to marginal cost. 
A)  the deadweight loss is equal to $12 000. 
B)  consumer surplus equals zero. 
C)  the marginal benefit of each of the 4000 metrics of pecans equals $3. 
D)  marginal benefit is equal to marginal cost.

Question 10

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Accepted Answer

A) True 
 B)False

Question 11

Governments grant patents to encourage

Accepted Answer

A)  research and development on new products. 
B)  competition. 
C)  low prices. 
D)  firms to form public enterprises. 
A)  research and development on new products. 
B)  competition. 
C)  low prices. 
D)  firms to form public enterprises.

Question 12

Figure 11.2   Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 11.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 11.2.The optimal quantity of street lights to install is

Accepted Answer

A)  3 
B)  4 
C)  6 
D)  9 
A)  3 
B)  4 
C)  6 
D)  9

Question 13

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Accepted Answer

A) True 
 B)False

Question 14

Consider a used car market in which half the cars are good and half are bad (lemons).Suppose the average price of a good car is $9000 and the average price of a lemon is $3000.If rational buyers are willing to pay $6000 for a used car,then sellers will agree to sell mostly the lemons at this price.What is the term used to describe this situation?

Accepted Answer

A)  Moral hazard 
B)  Adverse selection 
C)  An efficient market 
D)  Economic irrationality 
A)  Moral hazard 
B)  Adverse selection 
C)  An efficient market 
D)  Economic irrationality

Question 15

In the principal-agent relationship,the agent is

Accepted Answer

A)  the owner of a resource that has hired another party to act on his behalf. 
B)  the person who is placed in control over resources that are not his own, with a contractual obligation to use these resources in the interests of some other party. 
C)  the person who is placed in control over resources that are not his own and agrees to compensate the resource owner in the event of outcomes that do not satisfy the resource owner. 
D)  the person who places his resources in professional hands in exchange for the professional's promise to act on the resource owner's behalf. 
A)  the owner of a resource that has hired another party to act on his behalf. 
B)  the person who is placed in control over resources that are not his own, with a contractual obligation to use these resources in the interests of some other party. 
C)  the person who is placed in control over resources that are not his own and agrees to compensate the resource owner in the event of outcomes that do not satisfy the resource owner. 
D)  the person who places his resources in professional hands in exchange for the professional's promise to act on the resource owner's behalf.

Question 16

The 'tragedy of the commons' refers to the phenomenon where

Accepted Answer

A)  individuals are free riders. 
B)  people overuse a common resource. 
C)  people do not internalise an externality. 
D)  there is rivalry in consumption. 
A)  individuals are free riders. 
B)  people overuse a common resource. 
C)  people do not internalise an externality. 
D)  there is rivalry in consumption.

Question 17

In economics,the optimal level of pollution is the level for which the net benefit from reducing the pollution is the greatest.

Accepted Answer

A) True 
 B)False

Question 18

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Accepted Answer

A)  the Pigovian method of pollution control. 
B)  a command and control approach to pollution reduction. 
C)  a Coasian solution to pollution reduction. 
D)  a tradable emission allowance system of pollution control. 
A)  the Pigovian method of pollution control. 
B)  a command and control approach to pollution reduction. 
C)  a Coasian solution to pollution reduction. 
D)  a tradable emission allowance system of pollution control.

Question 19

If there is pollution in producing a product,then the market equilibrium price

Accepted Answer

A)  is too high and equilibrium quantity is too low. 
B)  and equilibrium quantity are too low. 
C)  and equilibrium quantity are too high. 
D)  is too low and equilibrium quantity is too high. 
A)  is too high and equilibrium quantity is too low. 
B)  and equilibrium quantity are too low. 
C)  and equilibrium quantity are too high. 
D)  is too low and equilibrium quantity is too high.

Question 20

A 'social cost' of production is

Accepted Answer

A)  the cost of the natural resources used up in production. 
B)  the total costs of producing a product, both implicit and explicit costs. 
C)  the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product. 
D)  the cost of the environmental damage created by production. 
A)  the cost of the natural resources used up in production. 
B)  the total costs of producing a product, both implicit and explicit costs. 
C)  the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product. 
D)  the cost of the environmental damage created by production.

What does a market supply curve reflect?

Figure 11.4 Figure 11.4 shows a market with a negative externality. -Refer to Figure 11.4.What price represents the true marginal cost of the last unit produced?

What does it mean if a good is classified as excludable?

Which of the following statements is true of the free rider problem?

Which of the following is a source of market failure?

The tragedy of the commons was avoided in the Middle Ages by

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If 4000 metrics of pecans are sold,

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Governments grant patents to encourage

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

In the principal-agent relationship,the agent is

The 'tragedy of the commons' refers to the phenomenon where

In economics,the optimal level of pollution is the level for which the net benefit from reducing the pollution is the greatest.

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

If there is pollution in producing a product,then the market equilibrium price

A 'social cost' of production is

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Exam 11: Government Intervention in the Market

What does a market supply curve reflect?

Figure 11.4 Figure 11.4 shows a market with a negative externality. -Refer to Figure 11.4.What price represents the true marginal cost of the last unit produced?

What does it mean if a good is classified as excludable?

Which of the following statements is true of the free rider problem?

Which of the following is a source of market failure?

The tragedy of the commons was avoided in the Middle Ages by

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If 4000 metrics of pecans are sold,

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Governments grant patents to encourage

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

In the principal-agent relationship,the agent is

The 'tragedy of the commons' refers to the phenomenon where

In economics,the optimal level of pollution is the level for which the net benefit from reducing the pollution is the greatest.

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

If there is pollution in producing a product,then the market equilibrium price

A 'social cost' of production is

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters